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Saturday, 25 August 2012

Your Katonomist must confess something. Amongst the very serious economics and IP blogs in her reader, lie more than a few fashion blogs. One of her favourites is that of jewellery designer and blogger supreme, Wendy Brandes (who even blogs about economics). Unfortunately for Wendy, your Katonomist's three favourite topics combined in a surprising way.

Wendy's rings

New York-based Wendy began her fine jewellery line in 2005 and later added a diffusion line called WendyB. In 2008, she introduced swear rings which are sets of rings which spell out amusing words or acronyms such as F@#!, OMG and WTF. As Wendy herself points out, fashion is all about borrowing, building on the past (prior art) and there is "nothing new under the sun." Fashion, as I've noted previously, thrives on a culture of copying. While the swear rings aren't groundbreaking in terms of using letters on rings, Wendy's rings are reasonably novel and have become associated with her brand. The particular set in question, her swear rings, are popular and one of her top selling items.

Topshop's rings

This year, Wendy's UK readers started noticing similar sets of rings at Topshop. One, in particular, is a brass set of rings that bear an uncanny resemblance to Wendy's. The font, style and combination of letters and symbols is either the same or very similar. Once this was spotted and social media kicked in, TopShop tweeted an apology and a promised to remove the rings. However, Wendy's readers continued to find the rings for sale. The current state of the situation is a little unclear, but Topshop has written that it will stop selling the rings.

The culture of copying in fashion is not universally beneficial. Smaller firms are relatively more affected by copying and may not have the resources to pursue legal action. Wendy's is a classic example of this. As a small business owner, Wendy is aware that this kind of copying can negatively impact her business. The WendyB brand may potentially be damaged from the association with lower quality copies. Furthermore, there is the loss of potential income from licensing the design to a retailer such as Topshop. (Her posts on the subject here, here, here and here.)

To feed this kind of scenario back into policy, however, is quite tricky. The anecdotal evidence is fairly clear. However, measuring the negative impact caused by copying is problematic. The most straightforward to measure would be the loss of potential licensing income (reasonable royalty). However, even that is based on the counterfactual and, in this case, Topshop did not attempt to license. Attributing copying to changes in sales volume is also difficult to prove as loss profits analysis again relies on the counterfactual.

I asked Wendy about the impact on her business and she wrote,

I haven't seen a meaningful impact on sales either way. As you say, it's the loss of income from a legitimate collaboration that's more of an issue. Plus the thousands of hours and dollars that I put into promoting my design has been leveraged for free by this other manufacturer [Merpel suggests that this represents a savings in research & development costs for Topshop]. I do find the damage to my reputation to be worse than expected. I've certainly seen people comparing the photos online and assuming -- since the designs are virtually identical in appearance -- that the two products are also equivalent in materials and workmanship. Therefore, to those people, my pieces are outrageously expensive. "I can get the same thing anywhere," they write. But it's the low-priced pieces that have a much steeper mark-up than mine, while mine are underpriced relative to the actual cost of producing high quality in low volume. The one thing that could get me price breaks for manufacturing that would be passed along to customers? A large order like the one Topshop could have given me.

Before I went into this business, I, like other people with no manufacturing experience, was flip: "Designers should just knock off themselves before someone else does it." Well, now I know that making something inexpensive at retail can cost me $50,000 or more. If I COULD afford to knock myself off I would, but it's less expensive for me to make high-end items until I have an investor/collaborator.

Wendy adds an important note to the debate - smaller firms are often not able to afford high-volume, low-cost copies. Even if firms like Wendy's could order such quantity and "knock off themselves", would they be able to sell it? Furthermore, could we adequately tweak policy to account for these situations without damaging other areas of the sector? What do we consider fair?

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